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Bank of America to test annual fee charges on credit cards

Posted on 22. Oct, 2009 in Credit cards, General News

Bank of America announced plans to pilot an annual fee charge of $29 to $99 on a few of its credit card customers worldwide (about 1 percent) beginning in 2010.

Bank of America is the third-largest credit card company in the US.

Why annual fees?

The goal of the proposed annual fee charges is to reduce risk and increase profitability. Therefore customers who pay promptly and hence never attracted default interest charges would be those who will be taken in the pilot.

The annual fee charge was also adopted to show BofA commitment not to raise interest rates on credit cards before the coming into force of the new credit-card laws in February 2010.

The pledge was made in response to US Congress resolution to shift  the implementation date of the law to December 2009 when some credit card companies began raising interest rates and reducing credit amounts and access in the middle of this year after the credit card law was passed.  

It had been envisaged that banks would be tempted to charge annual fees in response to market forces and the new credit card law on basis avoiding cost and risk.

Consumer rights violated?

Card users have up to December 16 to accept or reject the annual fees. However, they risk having their accounts closed if they refuse the fees.

Closing a credit card account comes with it serious consequences to a card user. The most crucial being the loss of personal credit score, hence a lower the amount of credit available to a person.

The BofA has already started the annual fees on its airline rewards cards.

Consumer protection

A balanced consumer protection is crucially needed to ensure that it is a win-win solution for both consumers and credit card companies like BofA.